THE INTERACTION BETWEEN TIME-NONSEPARABLE PREFERENCES AND TIME AGGREGATION

This paper specifies and empirically analyzes a continuous-time, linear-quadratic, representative consumer model with time-nonseparable preferences of several forms. Within this framework I show how time aggregation and time nonseparabilities in preferences over consumption streams can interact. The behavior of both seasonally adjusted and unadjusted consumption data is consistent with time-nonseparable preferences if consumption goods are durable and if individuals develop habit over the flow of services from the good. The data do not support a version of the model that ignores time nonseparabilities in preferences and focuses solely upon time aggregation.